How to measure ROI and ROAS to get a better price for advertising on Google?
In digital marketing, return on investment (ROI) and return on ad spend (ROAS) are essential for anyone looking to get a better price for advertising on Google or any other platform. Proper campaign optimization and ad budget management based on these two metrics can lead to significant growth for small and large businesses.
Google Ads is one of the most common and used ways to reach potential customers. Whether this advertising channel can bring us the desired results depends on various factors. Understanding and using the right metrics - ROI (return on investment) and ROAS (return on ad spend) is key to running a successful marketing campaign.
In this article, we'll look at the difference between the two and understand why proper targeting and optimization are important for our campaigns. Implementing best practices to get the most out of Google Ads is a sure way to achieve our marketing goals. Learn what they are.
What is ROI and how is it calculated?
ROI (Return On Investment) in Bulgarian means return on investment. With the help of ROI we can easily calculate the percentage of our profit compared to the marketing costs that an advertisement generates.
πΈ Calculation formula:
ROI = (Advertising Revenue - Advertising Cost) / Advertising Cost x 100%
πΈ Example:
Investment (expense) - 100 BGN
Income - 300 BGN.
(300 - 100) / 100 Ρ 100% = 200%
The resulting return on investment is 200%. This formula is important for the optimal use of marketing budget, good performance and reasonable price for advertising on Google.
What is ROAS and how is it calculated?
ROAS (Return On Ads Spend) stands for return on ad spend , or simply put, the amount we've earned relative to the ad budget spent.
πΈ Calculation formula:
ROAS = revenue / expenditure
πΈ Example:
Advertising costs: 100 BGN
Income: 1000 BGN.
1000 / 100 = 10
The resulting ROAS is 10, which gives us a starting point for how our campaigns are performing. Based on ROAS, we can assess where to focus our attention in relation to optimization and thus improve the final cost per Google ad we pay.
ROAS vs. ROI in Google advertising
Using ROAS, we measure the return on each PPC ad, or in simpler terms, how much money we make directly from that particular ad versus the money we invested in it - the final price we paid for a Google ad.
At the same time, ROI indicates the total return, which includes all costs around the product.
It's important to track both metrics to know where we stand against our goals.
What businesses is Google Ads the right channel for?
For our Google Ads to be successful, it's good to take into account user intent. People who use the search engine usually have a specific reason for their search. Often there is no need for an initial introduction to the product because users are already interested in it.
On the other hand, spontaneous ordering lacks prior research and purchase intent. This is often the case with products that are more affordable and whose use is more widespread.
Of course, the products or services offered are essential to the final price we will pay for Google advertising. In some industries, the cost per click can be quite high, and in others, lower. Take a look at the average online advertising prices for last year here.
What factors affect the cost of advertising on Google?
The success of our business depends on the product we offer, but also its positioning in the market plays a key role. Some of the more significant aspects to consider are:
β What is the competition we have in the specific niche market?
β Keyword research based on user search.
β Analyzing the average cost per click of selected keywords.
Our PPC advertising has a higher chance of success if we take these factors into consideration.
π The size of the marketing budget
It is not impossible to run a successful marketing campaign even with a small budget. To achieve this, you need to set clear and achievable goals that are tailored to the specifics of your audience.
If your budget is tight, it's essential to optimise your campaigns smartly to achieve a lower cost per Google ad and better ROI. You do this by planning ahead and making informed decisions based on analysis of previous campaigns.
π The peculiarities of business
Whether we position our ads on Google or another online advertising platform , it is good to take into account the specifics of our business and the product niche it occupies. Highlighting our business strengths and assets will bring additional pluses to our Google ad performance.
π The average price of products
If we consider the average value of the shopping cart, it will be much easier to put together a plan to determine whether we should take steps to increase it. This is necessary if we want to influence our turnover, which is directly related to return on investment (ROI), which is related to the final price we pay for Google advertising.
π Average selling price
For anyone using Google Ads, it's important that the average cost per sale is low because profits increase when ad spend is lower. Using your marketing budget wisely is the foundation of a good ROI.
π The different channels through which users find/search for us
There are many different channels through which we can implement our advertising. Some of the most commonly used are Google, Facebook, Instagram and Youtube. Each channel features specific user traffic. In order for our campaign to be successful we need to consider where we will find our target audience.
What are the signs of a good ROAS?
There is no definitive answer as to what the metrics of a perfect ROAS are, but generally speaking it can be said that anything above 4 (400%) is considered a good metric.
Of course, the specifics of the industry in which we develop must also be taken into account, because some specific niches may have prerequisites for a different threshold of optimal ROAS.
If we have a case where our ROAS is below the desired minimum it is good to review optimization strategies.
What types of campaigns are appropriate for different types of businesses?
In order to have a successful marketing campaign it is desirable to take into account the nature of our business.
If our customers are making rather targeted orders, it is desirable to focus on search campaigns.
Whereas if our product is for a wider audience or we are aiming for brand positioning, display campaigns and Youtube ads are the right choice for us.
Why is it important to analyze traffic and user behavior with Google Analytics?
Google Analytics is one of the best helpers for marketers. It makes it easy to analyse user behaviour and use the data to optimise campaign performance. This is the most direct way to achieve a better price for advertising on Google and higher returns.
The tool provides information about the interests and needs of our audience and the path they take to make their purchase.
But how can we use it to reduce the cost and increase the return on our Google advertising?
Easy way to analyze Google Analytics data to measure ROI
A convenient way to track ROI is to create targeted actions or so-called conversions in Google Analytics. This is how we understand which channels and ads are driving the most conversions and what the amount of their return is relative to the spend.
πWhat is advertising engagement and how is it measured?
An important sign of the success of our advertising campaign is consumer engagement. It is measured through various metrics:
π₯ The average time users spend on our site.
π₯ The number of page views
π₯ Bounce rate or how fast users leave our site.
High user engagement is a prerequisite for higher conversions.
πKey metrics that influence return on advertising campaigns (ROAS)
β¨ Engagement rate is an indicator of the total percentage of interaction our users have with a specific ad. It is calculated relative to the total number of impressions of our campaign.
β¨ Click-through rate (CTR) is an indication of the percentage of users who click on an ad compared to the number of times it is displayed.
β¨ The conversion rate shows what percentage of users perform a certain action after clicking on our ad. Most often these are making a purchase or registering.
Using these metrics can help us determine if our advertising has been successful. This is the case when there is a sale made. We can also assess the foresight of our advertising investment.
πApplication of these indicators
Determining which ad campaigns perform best happens when we compare engagement rate, CTR and conversion rate.
If we want to spend our budget wisely, it's a good idea to focus on ads that have a high ROI.
What are some ways to use attributional modeling?
Attribution modeling is an indicator of how long after seeing an ad consumers place an order. This allows for the exploration of user journeys and the optimization of conversions depending on the different points of contact.
So businesses that use more than one ad channel can get a clearer picture of the real contribution of Google Ads to conversions.
How to use A/B testing to improve campaigns?
The essence of A/B testing is theapplication of different variations of advertising messages and visual elements. This is done in order to find the most effective combination that would increase ROI and ROAS.
A/B testing is the best way to optimize your campaigns based on real data. By analyzing metrics and trying out new audiences and creatives, over time you'll hone in on the winning formula to optimize your campaigns for better results.
High ROI and achieving the goals we've set for our business are easier if we use continuous optimization of our campaigns.
ROI and ROAS are the main indications that show the success of our advertising campaigns in Google Ads and help us determine whether the invested funds for advertising are used as efficiently and effectively as possible.
While ROAS shows the return on expenditure for a specific advertisement, ROI reveals the more complete picture of the business and includes all the costs that are associated with positioning our product in the market.
If we regularly track and optimize both metrics, managing our budget will be easier and more efficient, and the final cost of advertising on Google will be lower. As with any aspect of digital marketing, understanding consumer behaviour is the best way to achieve better results.
In conclusion, if we want to have successful Google Ads campaigns, we need to not only set clear goals, but also target our leads correctly. Regularly analysing and optimising campaigns is the way to keep up with market changes and different audience needs.